Maryland Court of Special Appeals

Administrative Law; Regulatory sanctions: The disciplinary sanctions imposed by the Maryland Securities Commissioner on an individual for over 1,000 violations of the Maryland Securities Act, including revocation of the individual’s investment adviser representative registration, permanent bar from the Maryland securities and investment advisory industry, and a $255,000 fine, were not imposed unreasonably, did not lack a rational basis, and did not deprive the individual of due process or notice, and, therefore, the circuit court judgment upholding the sanctions imposed by the Commissioner was affirmed. In the Matter of the Petition of Everest Investment, No. 1474, Sept. Term, 2017.

Civil Procedure; In banc review: Under Maryland Rule 2-551, which governs the procedures for seeking in banc review, an in banc appellant is not required to include the issues for review in the notice of appeal in order to properly “reserve” them, and, therefore, the in banc panel did not err in denying a motion to dismiss a party’s in banc appeal for failure to include such issues in her notice for in banc review. Guillaume v. Guillaume, No. 2918, Sept. Term, 2018.

Criminal Procedure; Expungement: Although a petition for expungement typically may not be granted unless the petitioner is entitled to expungement of each charge in the “unit,” consisting of two or more charges that arise from the same incident, transaction, or set of facts, pursuant to §10-107 of the Criminal Procedure Article, expungement was permitted where the charge which the petitioner was not entitled to have expunged was a minor traffic violation that arose from the same incident, transaction, or set of facts because this minor traffic violation did not count as part of the “unit.” In re Expungement Petition or Dione W., No. 2182, Sept. Term, 2018.

Criminal Procedure; Writ of actual innocence: In considering the defendant’s request that he be granted a new trial because the prosecution’s ballistics expert witness testified falsely about his professional qualifications, the circuit court properly analyzed the impact of the false testimony in accordance with McGhie v. State, 449 Md. 494 (2016), and did not abuse its discretion in finding that the jury would have disregarded the expert’s testimony in its entirety and that the defendant had not shown that there was a substantial possibility that the result of his trial might have been different if the jurors had known of the expert’s false testimony. French v. State, No. 2386, Sept. Term 2018 (filed Oct. 31, 2019), consolidated with No. 488, Sept. Term, 2018.

Insurance Law; Duty to defend: Where a liability insurance policy made the general contractor an additional insured with respect to claims arising out of or caused by the subcontractor’s work for the general contractor, and the allegations in a lawsuit demonstrated a potential that the damages resulted from the general contractor’s supervision of the subcontractor’s work, the liability insurer for the subcontractor had a duty to defend a suit against the general contractor and was subject to liability for the reasonable costs of defending the entire suit against the additional insured for its breach of this duty. Selective Way Insurance Company v. Nationwide Property and Casualty Insurance Company, No. 755, Sept. Term, 2018.

Administrative Law

Regulatory sanctions

BOTTOM LINE: LAW: The disciplinary sanctions imposed by the Maryland Securities Commissioner on an individual for over 1,000 violations of the Maryland Securities Act, including revocation of the individual’s investment adviser representative registration, permanent bar from the Maryland securities and investment advisory industry, and a $255,000 fine, were not imposed unreasonably, did not lack a rational basis, and did not deprive the individual of due process or notice, and, therefore, the circuit court judgment upholding the sanctions imposed by the Commissioner was affirmed.

CASE: In the Matter of the Petition of Everest Investment, No. 1474, Sept. Term, 2017 (filed Oct. 31, 2019) (Judges MEREDITH, Berger & Zarnoch (Senior Judge, Specially Assigned)).

FACTS: The Maryland Securities Act, codified as Title 11 of the Corporations and Associations Article (“CA”), provides the statutory framework for the regulation of the securities and investment advisory businesses in Maryland. The Act is administered by the Division of Securities, which is headed by the Securities Commissioner. Under CA §11-701, the Commissioner is vested with enforcement authority, including subpoena power, and is authorized to order a broad range of disciplinary actions after determining that “a violation” of the Maryland Securities Act has occurred, including barring the violator from engaging in the securities business or investment advisory business in this State.

On June 17, 2015, the Division served an order to show cause upon counsel for Philip Rousseaux and two companies he owned, Everest Investment Advisors, Inc. (“EIA”) and Everest Wealth Management, Inc. (“EWM”), alleging a long list of securities act violations dating back to 2004. The Division ordered that EIA, EWM, and Rousseaux each show cause why their registration as an investment adviser or investment adviser representative, respectively, should not be revoked; why EIA, EWM, and Rousseaux should not be barred permanently from engaging in the securities and investment advisory business in Maryland; and why a statutory penalty of up to $5,000 per violation should not be entered against each defendant. The Division alleged violations related to unauthorized use of MetLife Medallion Signature Guarantee stamps, misrepresentations regarding EIA’s “Wrap Fee Program,” misrepresentations regarding past performance results, misrepresentations as to minimum account balance for the EDGM program, misrepresentation of the amount of assets under management by EIA, use of a fictitious “Investment Committee” for marketing purposes, misuse of a “Financial Planning Agreement” form, and that EWM held itself out as an Investment Advisor despite not being registered with the Division as required.

The Commissioner found that there appeared to be a lack of separation between EWM and EIA, and that, in 2012, EWM was holding itself out as a “small boutique local investment advisory firm” in print advertising and on the radio, despite the fact that EWM was not registered with the Division as an investment advisor. Even after the Division notified Rousseaux and EWM of the apparent violation, EWM continued for a period of time to hold itself out as an investment advisor in violation of CA §11-401(b). The Commissioner found that Rousseaux had committed a total of 1,218 violations, EIA a total of 1,103 violations, and EWM a total of 203 violations. Taking into account the recommendations of an administrative law judge, the Commissioner imposed sanctions, including monetary fines and a total bar on the defendants from engaging in the securities and investment advisory businesses in Maryland.

Rousseaux, EIA, and EWM all joined in filing a petition for judicial review in the circuit court, challenging only the sanctions imposed by the Commissioner. The circuit court concluded that the sanctions were lawful and authorized. Rousseaux alone appealed to the Court of Special Appeals, which affirmed the judgment of the circuit court.

LAW: Notably, Rousseaux did not challenge the Commissioner’s finding that he committed 91 violations of CA §11-301(2) and (3) relative to his unauthorized use of certain pre-stamped MetLife Medallion Signature Guarantee forms. Rousseaux argued solely that the disciplinary sanctions imposed by the Commissioner were arbitrary and capricious because of their severity. Hw contended that the sanctions ordered against him, including the revocation of his investment adviser representative registration, permanent bar from the Maryland securities and investment advisory industry, and a $255,000 fine, were unprecedented and disproportionately harsh given the misconduct at issue. As such, he asserted, he lacked notice that his compliance errors could result in the severe sanctions imposed.

This argument was wholly without merit. No rational person who is registered to act as an investment advisor in Maryland could review the results of the contested cases cited by Rousseaux and reasonably conclude that there was no likelihood of being barred from providing investment advisory services if that person committed the violations of the Act that the Commissioner found Rousseaux had committed. Indeed, no rational person in the investment advisory business in Maryland could claim a lack of notice that the Commissioner has been empowered since 1989 to impose a bar, plus a fine, for any violation of the Act. The statute is absolutely clear on this point.

Here, the Commissioner found, and Rousseaux did not dispute, that Rousseaux violated CA §§11-301(2), 11-301(3), 11-302(a), 11-302(a)(2), 11-302(a)(3), 11-302(c), 11-303, 11-401(b), 11-402(b), 11-411, 11-411(a), 11-411(d), 11-412(a)(2), and 11-412(a)(7), as well as COMAR 02.02.05.11, 02.02.05.12, and 02.02.05.16. Furthermore, many of the violations were repeated multiple times. There could have been no lack of notice to Rousseaux that he was subject to being barred as a sanction for his violation.

In addition to claiming he had no notice of the potential sanctions for his violations of the Act, Rousseaux argued, in the alternative, that sanctions that are extremely or egregiously disproportionate to the underlying misconduct render a decision arbitrary and capricious. Md. Aviation Admin. v. Noland, 386 Md. 556, 581 (2005). He asserted that the factors enumerated in a federal case, Steadman v. S.E.C., 603 F.2d 1126, 1140 (5th Cir. 1979), provided “useful guidance” for assessing whether sanctions are arbitrary or capricious in light of the misconduct at issue. The Steadman case was not binding upon the Commissioner, and is arguably in conflict with Maryland cases that prohibit courts from imposing the courts’ own standards upon Maryland’s administrative agencies. See Noland, 386 Md. at 574-79. In any event, however, application of the Steadman factors failed to support Rousseaux’s assertion that a permanent revocation and bar and a $255,000 fine were egregiously disproportionate and unnecessarily severe in light of his misconduct.

Here, the Commissioner provided a clear and rational explanation for the conclusion that the numerous violations committed by Rousseaux warranted a substantial fine, plus revocation of his registration as an investment adviser representative and imposition of a permanent bar from engaging in the securities and investment advisory business in Maryland. The Commissioner’s final order explained that the record amply documented that Rousseaux had engaged in a pattern and practice over many years of both violating the Act and its related rules and demonstrating a striking lack of concern about compliance. The Commissioner’s explanation of the $255,000 financial sanction was also quite reasonable. Although the maximum fine of $5,000 for each of the 1,218 violations would have totaled $6,090,000, the financial sanction imposed by the Commissioner was 4.2% of that amount, and represented an average fine of $209 for each violation of the Act. The Commissioner’s opinion indicated that the factors relative to fines set forth in COMAR 02.02.01.04 were considered.

Moreover, contrary to Rousseaux’s contentions, there was evidence relative to each of the Steadman factors that supported the sanctions imposed. The Commissioner found, among othet things, that Rousseaux’s conduct was egregious; the violations of the Act were numerous and continued over many years; there was scienter that use of the pre-stamped MetLife forms was unauthorized, intentional, and deceitful; and that there was a knowing or reckless misrepresentation of the wrap fee program. To the extent that the Steadman factors were relevant, the factors overwhelmingly supported the conclusion that the sanctions were neither arbitrary nor capricious.

As his final reason for arguing that the permanent bar should be overturned, Rousseaux contends that the bar was arbitrary and capricious because the Commissioner decreased the number of violations, yet increased the sanctions’ severity. This argument seemed to suggest that the Commissioner should have been bound by the ALJ’s recommendation of the appropriate sanction for violations. That turned on its head the fact that the Commissioner was the final decision maker, and the ALJ was merely making a recommendation with respect to the appropriate sanction. In sum, the Commissioner was the final decision maker, and, in compliance with COMAR 02.02.06.24B, the Commissioner’s final order provided a rational explanation for the choice of sanctions.

Accordingly, the judgment of the circuit court was affirmed.

COMMENTARY: In his exceptions to the ALJ’s proposed findings regarding the fraudulent use of certain pre-stamped forms, Rousseaux stated that he had not used these forms for the past nine years, and he suggested that the Commissioner should not be able to consider these acts of dishonesty in deciding whether he should be permitted to continue to provide investment advisory services in Maryland. Instead, he proposed, there should be a statute of limitations on sanctions for dishonest conduct. However, the Act contains no such statute of limitations. It would make little sense to charge the Commissioner with protecting the public against dishonest registrants but then prohibit the Commissioner from considering flagrant acts of deception that occurred more than a certain number of years in the past. The Commissioner did not find the argument about a statute of limitations persuasive, and there was no abuse of discretion in the Commissioner’s rejection of that argument.

Civil Procedure

In banc review

BOTTOM LINE: Under Maryland Rule 2-551, which governs the procedures for seeking in banc review, an in banc appellant is not required to include the issues for review in the notice of appeal in order to properly “reserve” them, and, therefore, the in banc panel did not err in denying a motion to dismiss a party’s in banc appeal for failure to include such issues in her notice for in banc review.

CASE: Guillaume v. Guillaume, No. 2918, Sept. Term, 2018 (filed Oct. 30, 2019) (Judges Reed, BEACHLEY & Gould).

FACTS: Dominique Guillaume and Chantal Guillaume were the parents of three children. On May 10, 2017, they executed a “Memorandum of Agreement” in an effort to resolve legal and physical custody, child support, alimony, and some property issues. Two days later, the circuit court entered a consent order incorporating the provisions of the Memorandum of Agreement.

By October 2017, both Dominique and Chantal had filed petitions for contempt. Dominique’s contempt petition alleged that Chantal violated the joint legal custody provisions of the consent order because she failed and refused to include Dominique in decision-making regarding the minor children. Chantal’s contempt petition alleged that Dominique violated the consent order by failing to apply for tuition benefits available through his employment with the International Monetary Fund on behalf of the parties’ eldest child. The circuit court found Chantal in contempt, and dismissed Chantal’s contempt petition against Dominique. In addition to its contempt rulings, the court ordered Chantal to pay Dominique $35,000 in attorney’s fees.

Chantal filed a Notice for In Banc Review. Dominique filed a motion to dismiss Chantal’s in banc appeal, claiming that the in banc panel lacked jurisdiction to review Chantal’s appeal pursuant to State v. Phillips, 457 Md. 481 (2018), because Chantal’s Notice for In Banc Review “listed no points or questions to be reviewed and gave no reasons why the Contempt Order was incorrect.” The in banc panel denied Dominique’s motion to dismiss the appeal, and ultimately vacated the contempt order as well as the circuit court’s award of attorney’s fees.

Dominique appealed the in banc panel’s decision to the Court of Special Appeals, which affirmed the judgment of the in banc panel.

LAW: Dominique contended that the in banc court lacked jurisdiction to consider Chantal’s appeal. Dominique asserted that Chantal failed to timely reserve questions for review because she did not include them in her Notice for In Banc Review, thus divesting the in banc court of jurisdiction. In making his argument, Dominique relied on the decision of the Court of Appeals in State v. Phillips, 457 Md. 481 (2018), a case interpreting the constitutional and procedural requirements for in banc review.

Article IV, Section 22 of the Maryland Constitution requires that the party noting an in banc appeal “reserve” the questions to be reviewed on appeal during the sitting at which such decision may be made. Additionally, Maryland Rule 2-551, which governs the procedures for seeking in banc review, provides, in relevant part, that when review by a court in banc is permitted by the Maryland Constitution, a party may have a judgment or determination of any point or question reviewed by a court in banc by filing a notice for in banc review. Issues are reserved for in banc review by making an objection in the manner set forth in Rules 2-517 and 2-520. Upon the filing of the notice, the Circuit Administrative Judge shall designate three judges of the circuit, other than the judge who tried the action, to sit in banc.

Regarding reservation, Rule 2-517(a), which governs evidentiary objections, requires the objecting party to object as soon as the grounds for the objection become apparent. Rule 2-517(c), which concerns “other rulings or orders,” requires the party, at the time that the ruling or order is made or sought, to make known to the court the action that the party desires the court to take or the objection to the action of the court. Rule 2-520(e), which concerns jury instructions, requires a party objecting to an instruction to object “on the record promptly after the court instructs the jury, stating distinctly the matter to which the party objects and the grounds of the objection.” Thus, Rules 2-517 and 2-520 appear to contemplate lodging objections to rulings that precede the final judgment, and require the objecting party to lodge the objection to those “non-final” rulings as soon as practicable.

In Phillips, the Court of Appeals explicitly considered the interplay between Article IV, Section 22 of the Maryland Constitution and Rule 2-551. See State v. Phillips, 457 Md. at 484. The Court chronicled the constitutional history of Article IV, Section 22, the case law interpreting that provision, and the adoption of what is presently Maryland Rule 2-551. Id. In that case, Phillips was charged with first-degree murder and related firearms violations. Id. at 484. Prior to his trial, Phillips filed a motion in limine to exclude evidence that the State intended to use against him. Id. The circuit court granted Phillips’s motion and entered an interlocutory order on February 12, 2016, which excluded the objectionable evidence. The State then sought in banc review of the circuit court’s interlocutory order granting the motion in limine.

The State’s request for in banc review of that order was bare-boned. It noted the State’s objection to the order but listed no points or questions to be reviewed and gave no reasons why the Order was incorrect. Not until the State filed its memorandum on March 18, 2016, did it list seven specific questions for review. Id. at 484-85.

On March 3, 2016, the county administrative judge appointed three judges of the circuit court to serve as the in banc review panel. Id. at 485. The in banc panel chair ordered the State to obtain a transcript of the motion in limine proceedings and set dates for the filing of memoranda. Id. Following a hearing in May, on June 3, 2016, the in banc panel reversed the order granting Phillips’s motion in limine. The panel also denied Phillips’s motion to dismiss the State’s in banc appeal, despite recognizing that the ruling on the motion in limine was not a final judgment and that, even if it were a final judgment, the State had no right under Title 12 of the Courts and Judicial Proceedings Article to appeal the granting of Phillips’s motion. Id.

After the Court of Special Appeals reversed the judgment of the in banc court, the Court of Appeals held that the in banc court lacked jurisdiction to consider the State’s request for in banc review. As relevant to the present case, the Court of Appeals held, in part, that the State did not timely object to the in limine ruling and therefore did not reserve the issue for in banc review. Id. at 511. In holding that the State had not timely preserved its objection for in banc review, the Court explained that the motion court’s ruling was made and docketed on February 12, 2016. The State filed a request for in banc review on February 18, 2016, but did not identify any points or questions for review or state reasons why the trial judge’s ruling was incorrect until March 17, 2016, when it filed its memorandum.

The court held that, even giving a more liberal interpretation to the meaning of “sitting” than was given in Costigin v. Bond, 65 Md. 122 (1986), because the ruling was not made in open court where a same-day objection is more feasible, and looking instead to whether the State properly objected to the ruling as required by Rules 2-517 or 2-520, a month would not qualify as a timely objection and thus was not a timely reservation. Id. at 511. Notably, the Court did not expressly hold that the State was required to identify the “points or questions for review” in the notice of appeal in banc filed February 18, 2016. Instead, the Court simply held that the State did not timely identify any points or questions for review or state reasons why the trial judge was wrong until more than a month after the unfavorable evidentiary ruling, and therefore failed to reserve those issues for in banc review. Id. In reaching its holding, the Phillips Court thoroughly reviewed the history and interpretation of the constitutional provision that an in banc appellant must timely (“during the sitting”) reserve issues for appeal.

Thus, contrary to Dominique’s argument, Phillips did not hold that an in banc appellant must identify the points or questions for review in the notice for in banc review in order to timely reserve them for appellate consideration. Such a rule would conflict with Rule 2-551(a), which states that issues are reserved for in banc review by making an objection in the manner set forth in Rules 2-517 and 2-520. Requiring a party to object to an evidentiary or other ruling as required by Rule 2-517, and then reiterate that same objection in the notice for in banc review, would be contrary to the purpose and intent of Rule 2-551(a).

This holding was consistent with Phillips. The Phillips Court merely held that the State’s in banc memorandum, filed more than a month after the trial court’s ruling, did not qualify as a timely objection to the admission or exclusion of evidence as required by Rule 2-517. For these reasons, the in banc panel did not lack jurisdiction to consider Chantal’s appeal, and the judgment of the in banc panel was accordingly affirmed.

COMMENTARY: Dominique’s only substantive challenge to the in banc panel’s decision concerned the in banc panel’s vacation of the trial court’s award of $35,000 in attorney’s fees against Chantal. Dominique claimed that the in banc in banc court erred because FL §12-103(c) does not require the trial court to consider the financial statuses or the needs of the parties before awarding attorney’s fees. However, nowhere in the court’s bench opinion did it refer to FL §12-103(c), nor did it explicitly find that Chantal lacked substantial justification in defending against Dominique’s contempt action. If the court had truly intended to award Dominique attorney’s fees pursuant to FL §12-103(c), it would not have stated that it “considered the financial situation of both sides.”

Moreover, the inherent errors within the contempt order required vacation of the award. Dominique did not dispute the in banc court’s determination that the trial court improperly “blurred” the lines between contempt and modification of custody. It would be unusual — and inequitable — to sustain Dominique’s attorney’s fee award under FL §12-103(c) where there was no justification for the relief Dominique requested and received in the proceeding, resulting in a reversal of the underlying judgment. As such, there was no error.

Criminal Procedure

Expungement

BOTTOM LINE: Although a petition for expungement typically may not be granted unless the petitioner is entitled to expungement of each charge in the “unit,” consisting of two or more charges that arise from the same incident, transaction, or set of facts, pursuant to §10-107 of the Criminal Procedure Article, expungement was permitted where the charge which the petitioner was not entitled to have expunged was a minor traffic violation that arose from the same incident, transaction, or set of facts because this minor traffic violation did not count as part of the “unit.”

CASE: In re Expungement Petition or Dione W., No. 2182, Sept. Term, 2018 (filed Oct. 30, 2019) (Judges Nazarian, ARTHUR & Wells).

FACTS: On March 10, 2013, Dione W. received four traffic citations: exceeding the maximum posted speed (i.e. speeding) in violation of Md. Code (1977, 2012 Repl. Vol.), §21-801.1 of the Transportation Article (“TA”); driving on a suspended license in violation of TA §16-303(c); possessing a suspended license in violation of TA §16-301(j); and displaying a suspended license in violation of TA §16-301(e). Under TA §27-101, speeding is a non-incarcerable offense for which the maximum punishment is a $500.00 fine. By contrast, driving on a suspended license, possessing a suspended license, and displaying a suspended license are all incarcerable offenses.

Dione requested a jury trial, and the case was transferred to the circuit court. On August 30, 2013, Dione appeared in the circuit court and pleaded guilty to one count of exceeding the maximum posted speed. The State entered a nolle prosequi as to the three other counts. The court imposed a $45 fine.

On January 17, 2018, Dione filed a petition seeking the expungement of the conviction for speeding and the three charges on which the State had entered a nolle prosequi. The State answered that Dione was not eligible for the expungement of the conviction for the minor traffic violation of speeding, but was eligible for the expungement of the three other charges. The State explained that, pursuant to Md. Code (2001, 2008 Repl. Vol., 2012 Supp.), §10-105(a) of the Criminal Procedure Article), the expungement remedy is available only when a person “has been charged with the commission of a crime, including a violation of the Transportation Article for which a term of imprisonment may be imposed.” A person may not obtain the expungement of “a record about a minor traffic violation,” such as speeding.

On May 30, 2018, the circuit court conducted a hearing on Dione’s petition for expungement. At the hearing, the court questioned whether it had “the authority to grant a partial expungement.” On July 9, 2018, the court denied the petition for expungement without prejudice.

Dione appealed to the Court of Special Appeals, which reversed the judgment of the circuit court.

LAW: Under §10-105(a)(4) of the Criminal Procedure Article (“CP”), Dione had the right to petition the court to expunge certain police records, court records, or other records maintained by the State if a nolle prosequi was entered, provided that she waited three years, which she did. Dione argued that the circuit court had no discretion to deny the petition for expungement, at least as to the charges other than the minor traffic violation of speeding. The State agreed.

In this case, the court balked at expunging the records pertaining to the charges of driving on a suspended license, possessing a suspended license, and displaying a suspended license if it could not expunge the conviction for speeding as well. The court seemed to believe that Dione would be entitled to expungement only if it could expunge all of the charges concerning the same incident, transaction, or set of facts. Under the circumstances of this case, that belief was incorrect.

Section 10-107 of the Criminal Procedure Article dictates what a court must do if a petition for expungement involves two or more charges arising from the same incident, transaction, or set of facts. If two or more charges, other than one for a minor traffic violation, arise from the same incident, transaction, or set of facts, they are considered to be a unit. CP §10-107(a)(1). A charge for a minor traffic violation that arises from the same incident, transaction, or set of facts as a charge in the unit is not part of the unit. CP §10-107(a)(1). If a person is not entitled to expungement of one charge in a unit, the person is not entitled to expungement of any other charge in the unit. CP §10-107(b)(1). The disposition of a charge for a minor traffic violation that arises from the same incident, transaction, or set of facts as a charge in the unit does not affect any right to expungement of a charge or conviction in the unit. CP §10-107(b)(2).

In other words, under §10-107, if two or more charges arise from the same incident, transaction, or set of facts, they are typically considered as a unit; and the petitioner is typically not entitled to expungement of any individual charge in that unit unless he or she is entitled to expungement of all of them. A charge for a minor traffic violation, however, does not count as part of the unit even if it arises from the same incident, transaction, or set of facts as the other charges. Therefore, the existence of a minor traffic violation does not prevent a court from expunging other charges that arose from the same incident, transaction, or set of facts.

In this case, there was no dispute that Dione was entitled to expungement of the charges for driving on a suspended license, possessing a suspended license, and displaying a suspended license: the conviction for a minor traffic violation does not affect the right to expungement for the three incarcerable traffic violations that did not result in a conviction even though they arose from the same incident. The court, therefore, erred in denying the petition to expunge as to the charges for driving on a suspended license, possessing a suspended license, and displaying a suspended license.

Accordingly, the judgment of the circuit court was reversed and the case was remanded to the circuit court with directions to grant Dione’s petition to expunge.

COMMENTARY: Under CP §10-105, a court has no discretion to deny the remedy of expungement if a person has demonstrated his or her statutory entitlement to it. As such, on appeal, eligibility for expungement is a question of law that is subject to de novo review.

Criminal Procedure

Writ of actual innocence

BOTTOM LINE: In considering the defendant’s request that he be granted a new trial because the prosecution’s ballistics expert witness testified falsely about his professional qualifications, the circuit court properly analyzed the impact of the false testimony in accordance with McGhie v. State, 449 Md. 494 (2016), and did not abuse its discretion in finding that the jury would have disregarded the expert’s testimony in its entirety and that the defendant had not shown that there was a substantial possibility that the result of his trial might have been different if the jurors had known of the expert’s false testimony.

CASE: French v. State, No. 2386, Sept. Term 2018 (filed Oct. 31, 2019), consolidated with No. 488, Sept. Term, 2018 (filed Oct. 31, 2019) (Judges MEREDITH, Berger & Wells).

FACTS: In 1994, following a trial in the circuit court, Mark French was convicted of attempted first degree murder, robbery with a dangerous weapon, and two counts of use of a handgun in the commission of a crime of violence with regard to the armed robbery of Brian Sherry and the attempted murder of Baltimore County Police Officer Joseph Beck. He was sentenced to life imprisonment for attempted first degree murder, plus a total of 35 years for the other convictions. On direct appeal, French’s convictions were affirmed by the Court of Special Appeals.

On July 24, 2012, French filed a motion for a new trial pursuant to Maryland Code (2001, 2018 Repl. Vol.), Criminal Procedure Article (“CP”), §8-301, asserting various claims related to the testimony given by expert witness Joseph Kopera at the 1994 trial. Generally, French claimed that Kopera had given false testimony regarding his qualifications as a ballistics expert. Because the relief was requested pursuant to CP §8-301, the circuit court treated French’s motion for a new trial as a petition for writ of actual innocence. Following a hearing, the circuit court denied French’s petition.

In October 2016, French, through counsel, filed a motion in the Court of Special Appeals requesting that his case be remanded to the circuit court in light of the opinion of the Court of Appeals filed on August 24, 2016, in McGhie v. State, 449 Md. 494 (2016). The intermediate appellate court granted the motion, remanded the case without affirmance or reversal, and stayed the appeal in No. 488, September Term, 2013, to permit French to petition the circuit court to reconsider its denial of his actual innocence petition in light of the intervening decision in McGhie. In McGhie, the Court of Appeals announced the appropriate analysis for reviewing a petition for writ of actual innocence in a case in which a French contended that he was entitled to a new trial because newly discovered evidence Kopera’s false testimony about his academic credentials created a substantial or significant possibility that the result of McGhie’s trial might have been different.

Pursuant to the remand to reconsider French’s actual innocence petition in light of McGhie, the circuit court held a new hearing on May 21, 2018. Subsequently, the circuit court denied French’s petition, finding that, although Kopera’s perjury was newly discovered evidence that could not have been discovered within the time to move for a new trial, the removal of Kopera’s testimony and all related testimony did not create a substantial possibility that the outcome of French’s trial might have been different. Acting on his own behalf, French filed a motion to alter or amend the circuit court’s ruling denying his actual innocence petition, which the circuit court denied.

French appealed the circuit court’s denial of his petition for writ of actual innocence to the Court of Special Appeals. This appeal was docketed as No. 2386, September Term, 2018. Later in September 2018, counsel for French filed a motion for appropriate relief requesting that the Court of Special Appeals proceed with the previously-stayed appeal, No. 488, because the circuit court had issued its opinion again denying French’s petition for writ of actual innocence. The Court granted counsel’s motion for appropriate relief and consolidated the appeal French had filed (No. 2386) with the appeal that had been filed prior to the McGhie decision (No. 488).

The Court of Special Appeals subsequently affirmed the judgment of the circuit court.

LAW: French contended that the circuit court erred by not granting him relief due to the fact that the trial court relied on the testimony of Joseph Kopera when ruling on the admission of other crimes evidence, making that evidence now improperly admitted. He further argued that the circuit court erred by not granting relief due to the fact the State relied solely on Kopera’s testimony to prove that a handgun was used to shoot the victim. In fact, however, the circuit court properly conducted the analysis required by McGhie.

First, the circuit court found, in accordance with McGhie, the evidence of Kopera’s lies about his academic credentials was “newly discovered” evidence. Next, the circuit court found that Kopera’s perjury could not have been discovered within the time prescribed in Maryland Rule 4-331. The circuit court then examined the question of whether this newly discovered evidence created a substantial possibility that the outcome of French’s trial might have been different if the falsity of Kopera’s testimony had been known by the jurors at the time of trial. This analysis complied with the required procedure set forth in McGhie.

French asserted that the circuit court erred in using the “substantial possibility” standard. He contended that, in cases such as this one, where a State agent is found to have testified falsely, the standard of review is stricter than the standard applied by the lower court. Relying on Yearby v. State, French argued that the appropriate legal standard requires a new trial where there is “any reasonable likelihood that the evidence affected the judgment of the jury.” Yearby v. State, 414 Md. 708, 717 n.5 (2010).

In Yearby, the Court of Appeals addressed whether the State had committed a Brady violation, and observed that the suppression by the prosecution of evidence favorable to an accused upon request violates due process where the evidence is material either to guilt or to punishment, irrespective of the good faith or bad faith of the prosecution. Id. at 716. There are three components of a true Brady violation: (1) the evidence at issue must be favorable to the accused, either because it is exculpatory, or because it is impeaching; (2) that evidence must have been suppressed by the State, either willfully or inadvertently; and (3) prejudice must have ensued. Id. at 717. There can be no Brady violation where there is no suppression of evidence. Id. at 725-26. The Yearby Court, in analyzing a Brady claim, explained that, where the facts demonstrate that the prosecution’s case included perjured testimony and that the prosecution knew or should have known of the perjury, a new trial is required if the false testimony could “in any reasonable likelihood have affected the judgment of the jury.” Id. at 717 n.5.

In the present case, however, there was no evidence that the State knew or should have known at the time of French’s trial that Kopera was giving false testimony regarding his qualifications as a ballistics expert. Indeed, the circuit court noted that French himself alleged that the newly discovered evidence of Kopera’s fraudulent testimony could not have been discovered in time for him to move for a new trial pursuant to Maryland Rule 4-331. The circuit court agreed with French on this point because, it said, the investigation and revelation into Kopera’s credentials was not until 2007. Cf. Maryland v. Kulbicki, ___ U.S. ___, 136 S.Ct. 2, 4 (2015). French presented no evidence that the State knew or should have known at the time of his trial in 1994 that Kopera was misrepresenting his professional background. As such, the stricter standard of review applicable to a Brady violation did not apply, and the circuit court applied the correct legal standard as set forth in McGhie.

In accordance with McGhie, the circuit court recognized the reasonable possibility that the jury, if it had been aware of Kopera’s lies about his academic credentials, would have discounted his testimony on the merits, as well as the lay witness testimony that followed from it. In denying French’s actual innocence petition, the circuit court considered only the remaining evidence it deemed untainted by, and not bolstered by, Kopera’s testimony. The circuit court found that while Kopera’s perjury was newly discovered evidence that could not have been discovered within the time to move for a new trial, it did not create a substantial possibility that the outcome of French’s trial may have been different. There was no abuse of discretion in the circuit court’s finding.

Accordingly, the judgment of the circuit court was affirmed.

COMMENTARY: French argued that the circuit court erred by using the testimony of Lisa Morton to deny relief. Morton’s testimony included knowledge that French had three guns, including a nine-millimeter handgun. Morton testified that French would come to her home in order to use drugs with others, including French’s girlfriend, Heather Kendall. Morton testified that when French arrived at her home on the night of the shooting, she asked French if he had shot a police officer, and she heard French respond “it was me or him.” French argued that the jury would not have believed Morton absent Kopera’s testimony corroborating that the gun found in Morton’s home at the time of French’s arrest matched the bullets found from the shooting.

This argument was without merit. After reviewing the trial transcript, the arguments made at the Writ of Actual Innocence hearing, and relevant case law, the circuit court properly found no merit in French’s contention that Kopera’s testimony supported the circumstantial witness identification of French. All lay witness testimony presented described French’s appearance, his presence in a vehicle matching a vehicle used in a burglary, and the presence of a female passenger. Although several identifying witnesses mentioned seeing a gun, there was no indication that Kopera’s expert ballistics testimony regarding the identification of the gun was in any way relevant to French’s positive identification.

Insurance Law

Duty to defend

BOTTOM LINE: Where a liability insurance policy made the general contractor an additional insured with respect to claims arising out of or caused by the subcontractor’s work for the general contractor, and the allegations in a lawsuit demonstrated a potential that the damages resulted from the general contractor’s supervision of the subcontractor’s work, the liability insurer for the subcontractor had a duty to defend a suit against the general contractor and was subject to liability for the reasonable costs of defending the entire suit against the additional insured for its breach of this duty.

CASE: Selective Way Insurance Company v. Nationwide Property and Casualty Insurance Company, No. 755, Sept. Term, 2018 (filed Oct. 30, 2019) (Judges ARTHUR, Shaw Geter & Eyelr (Senior Judge, Specially Assigned)).

FACTS: In 2001, the Highpointe Business Trust engaged Questar Builders, Inc., to oversee the construction of the Highpointe Apartments. Construction was completed in early 2004. As the general contractor for the project, Questar entered into contracts with dozens of subcontractors. In four of those subcontracts, executed between 2001 and 2003, SEH Excavating Contractors, Inc., agreed to perform land development work for the project; Streett’s Waterproofing, Inc., agreed to perform waterproofing work for certain buildings; Justice Waterproofing, Inc., agreed to perform waterproofing work for tennis courts above a parking garage; and King Carpentry Contractors, Inc., agreed to perform rough carpentry work for certain buildings.

Each subcontract required the subcontractor to indemnify Questar from claims for damages resulting from the subcontractor’s work; to maintain commercial general liability insurance with “primary and noncontributory” coverage; and to name Questar as an “additional insured” under those policies. For various policy periods between 2001 and 2007, those four subcontractors purchased commercial general liability insurance from Selective Way Insurance Company. In the policies that it issued to the subcontractors, Selective Way promised to indemnify its insureds if they became legally obligated to pay damages based on claims covered by the policy and to defend the insureds in any lawsuit seeking those damages.

Each Selective Way policy included provisions extending this coverage to an additional party if the named insured entered into a written contract requiring it to provide insurance for that additional party. These provisions specified that any party that became an additional insured because of a contract would be treated as an insured “only with respect to” the named insured’s work for that additional party. The policies further specified that the coverage resulting from such a contract would be “primary and not contributory” with respect to the additional insured, if the contract so required. Through the combined effect of these policies and subcontracts, Selective Way became Questar’s insurer with respect to claims against Questar arising out of the work performed at the Highpointe project by SEH Excavating Contractors, Streett’s Waterproofing, Justice Waterproofing, or King Carpentry Contractors.

In a transaction that coincided with the completion of construction, a third party purchased the Highpointe Apartments. On July 13, 2006, the purchaser filed a lawsuit based on “the defective construction of the Highpointe Apartments” by Questar. As amended, the complaint asserted four counts against Questar and two executives. Each count against Questar rested on allegations that it had failed to properly oversee the work of its subcontractors and that defects in the construction resulted in extensive water infiltration throughout the buildings. The purchaser sought to recover $4.5 million for the damage allegedly caused by Questar’s conduct.

To undertake its defense, Questar turned to its liability insurers: Nationwide Property and Casualty Insurance Company and Nationwide Mutual Insurance Company. Nationwide agreed to defend Questar under a reservation of rights, appointing and paying for counsel to represent Questar separately from the other defendants. Questar denied liability, but also filed a third-party complaint, seeking indemnity or contribution from 26 subcontractors that performed work at the Highpointe project. In the third-party complaint, Questar claimed that, if it were found liable in the construction-defect lawsuit, then the subcontractors should be liable to it for all or some of its liability to the purchaser. The third-party defendants included the four subcontractors insured by Selective Way.

On April 1, 2008, Questar’s attorney made written requests for defense and indemnification under the policies issued by Selective Way. Selective Way declined to defend Questar against the lawsuit based on allegations that its subcontractors had performed defective work. In a subsequent declaratory judgment action brought by Nationwide, the circuit court determined that the Selective Way had been obligated to defend Questar in the construction-defect lawsuit. The circuit court ordered Selective Way to pay the costs of defense, in an amount decided by a jury. After the jury verdict, the court ordered Selective Way to pay prejudgment interest on those defense costs and to pay all expenses incurred in the declaratory judgment action, in an amount decided by the court rather than by a jury.

Questar appealed to the Court of Special Appeals, which affirmed the judgment of the circuit court with respect to Selective Way’s obligation to pay defense costs from the construction-defect lawsuit; reversed the judgment with respect to the award of prejudgment interest by the court; and vacated the judgment with respect to attorneys’ fees and expenses incurred in the declaratory judgment action. The case was remanded for a jury trial solely to determine the amount of attorneys’ fees and expenses incurred in the declaratory judgment action as a result of Selective Way’s breach of the duty to defend.

LAW: Selective Way challenged the declaratory judgment of the circuit court that Selective Way owed a duty to defend Questar in the construction-defect lawsuit. Under the typical liability insurance policy, the insurer must indemnify the insured for the payment of a judgment based on a liability claim which is covered by the policy and must defend the insured against a liability claim which is covered or which is potentially covered by the policy. Mesmer v. Maryland Auto. Ins. Fund, 353 Md. 241, 257 (1999). An insurer breaches its duty to defend if it refuses to defend a suit where a claim is potentially covered by the policy.

For various policy periods between 2001 and 2007, Selective Way sold commercial general liability insurance to four of Questar’s subcontractors. These policies included standard promises to pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” and to defend the insured against any “suit” seeking those damages. The four subcontractors were the “named insureds” in their respective policies. In addition, each policy included language amending “who is an insured” to include as an additional insured any person or organization with whom it was agreed, because of a written contract, to provide insurance, but only with respect to “your ongoing operations,” “your work,” “your product,” or “premises owned or used by you.”

Between 2001 and 2003, each of the four subcontractors executed written contracts with Questar to perform construction work at the Highpointe project. Each subcontract required the subcontractor to maintain commercial general liability insurance “with respect to” the subcontractor’s work on the project. Each subcontract further provided that the subcontractor’s coverage would be primary and noncontributory, and that Questar and the property owner would be named as additional insureds.

Because each subcontractor agreed, in a written contract, to provide insurance for Questar, Questar became an additional insured under each policy “with respect to” the subcontractor’s work for Questar. Under the policies in which Questar became an additional insured with respect to Questar’s liability arising out of the subcontractor’s work, Selective Way was obligated to defend Questar against any claim grounded on the failure to properly supervise the subcontractor’s work. See Baltimore Gas & Elec. Co. v. Commercial Union Ins. Co., 113 Md. App. 540, 562 (1997). Under the policies in which Questar became an additional insured with respect to its liability for injury or damage “caused, in whole or in part, by” the subcontractor’s work, Selective Way was obligated to defend Questar against any claim for liability alleged to be proximately caused by the subcontractor’s work for Questar. See James G. Davis Constr. Corp. v. Erie Ins. Exch., 226 Md. App. 25, 43 (2015).

The allegations in the lawsuit against Questar fell within the coverage provided by Selective Way. See St. Paul Fire & Marine Ins. Co. v. Pryseski, 292 Md. 187, 193 (1981). The allegations against Questar both in an original complaint filed in 2006 and an amended complaint filed in 2007 concerned “the defective construction of the Highpointe Apartments.” In both versions, the plaintiffs sued Questar for breach of a construction contract, negligent construction, and negligent misrepresentation. In each count, the plaintiffs sought $4.5 million for property damage that allegedly resulted from Questar’s conduct.

All counts against Questar rested on common allegations that Questar failed to properly oversee and supervise the construction of the Highpointe Apartments. The plaintiffs alleged that two Questar executives supervised “all construction activities with regard to the Highpointe Apartments on behalf of” Questar; that during construction “there were failures to comply with applicable building codes, use of faulty, inferior and unspecified materials, deviations from plans and specifications and unworkmanlike construction that did not meet the minimum industry standards and building practices for construction and design of residential apartments”; that these defective conditions resulted in damage to real and personal property; and that Questar “knew” or “should have known” of the existence of these defects but either failed to repair the defects or made ineffective repairs that exacerbated the problems. The breach of contract count included an allegation that Questar breached its obligations “to use its best skill and attention to supervise and direct the work” and to be responsible for acts and omissions of its employees, subcontractors and their agents and employees, and other persons performing portions of the work on behalf of Questar or any of its subcontractors.

These allegations showed that Questar had been sued “with respect to” the work of its subcontractors, for “liability arising out of” the work of its subcontractors, and for property damage alleged to be “caused, in whole or in part, by” the work of its subcontractors. See James G. Davis Constr. Corp. v. Erie Ins. Exch., 226 Md. App. 25, 44-45 (2015). The plaintiffs did not confine their allegations to the work of any particular subcontractor or group of subcontractors, but the complaints did include a description of the allegedly defective work. The allegations of defective work, when viewed alongside the descriptions of the work performed by the subcontractors, together demonstrated a reasonable potential that the issue triggering coverage would be generated at trial in the construction-defect lawsuit. Litz v. State Farm Fire & Cas. Co., 346 Md. 217, 231 (1997). The mere possibility that Selective Way might need to indemnify Questar was enough to trigger Selective Way’s duty to defend. See Commercial Union Ins. Co. v. Porter Hayden Co., 116 Md. App. 605, 688-89 (1997).

For these reasons, the circuit court correctly determined, based on the parties’ submissions with their summary judgment motions, that Selective Way had a duty to defend Questar because the allegations in the underlying lawsuit raised claims that potentially arose from the subcontractors’ work at the Highpointe Apartments. Accordingly, the circuit court judgment was affirmed with respect to Selective Way’s obligation to pay defense costs from the construction-defect lawsuit. The judgment was reversed with respect to the award of prejudgment interest by the court, vacated with respect to attorneys’ fees and expenses incurred in the declaratory judgment action, and the case was remanded for a jury trial solely to determine the amount of attorneys’ fees and expenses incurred in the declaratory judgment action as a result of Selective Way’s breach of the duty to defend..

COMMENTARY: While Selective Way’s challenges to the underlying damage award of $994,719 were without merit, Selective Way correctly contended that the trial court erred by adding $430,534 of prejudgment interest to the damages awarded by the jury, where the verdict did not include any prejudgment interest. At the trial on Selective Way’s liability for defense costs, Nationwide did not request any jury instructions on prejudgment interest, nor did the special verdict sheet proposed by Nationwide include any question regarding prejudgment interest. The circuit court erred in adding prejudgment interest to the damages awarded by the jury. The court was not authorized to award prejudgment interest where the allowance of prejudgment interest would have been discretionary with the jury had it been presented to the jury for consideration, where no such claim was presented to the jury, and where Nationwide did not request such an instruction. Fraidin v. Weitzman, 93 Md. App. at 219-20. Therefore, the judgment was reversed with respect to the award of $430,534 for prejudgment interest.